The Blog of Burgher Jon

Some companies have become famous for innovating (think 3M), while others derive their reputation from operational efficiency (think Honda).  I’ve long been a proponent of innovation.  In a paper for my MBA program I was asked to defend this decision and setup a structure with in a fictitious organization that would convert the culture from operationally focused to innovation focused.  The question made me think for a little while, but I ended up posing the following solution (excerpts and paraphrasing are written as a memo to my boss explaining my next steps):

In order to establish an innovative culture within my new division, I will be following two critical steps.  I will first determine the most critical areas of innovation that are required; establishing these critical areas as the goals for innovation within the division.  Then, I will identify organizational constructs, processes and controls that will allow us to achieve these goals.

…

We need to establish an innovative culture that revolves around three primary goals:

1. Locating and pursuing the appropriate markets for our new product.
2. Identifying threats and opportunities brought on by disruptive innovations in our industry.
3. Ensuring that our division leverages and contributes to communities of innovation in our industry and our supply chain.
4. Maintaining a commitment to carrying innovative products.  << I didn’t focus on this one, because a solid R&D process was already in place at the company >>

…

The first three of these items will be implemented by setting up a series of innovation focused virtual teams.  These virtual teams will be composed of executives, managers and line workers from many existing teams as well as dedicated business analysts.  Their job will be to review the fruits of our new innovation suggestion process (a web submission process designed to transform water cooler complaints in to helpful innovations).  They will analyze the feasibility and priority of each of these suggestions.  Membership on these teams will rotate so that all employees gain exposure to the innovation process and gain an active role in selecting and refining innovations.  Additionally, employees will be measured moving forward, in-part, based on their innovative recommendations.

This is a rather harsh chopping of a 6 page paper that went in to the theory behind each of these points.  I’ll get a chance to get a grade on the theory from my professor; I placed these words on this blog because I’d like to hear your thoughts.  My guess, based on the people who read the blog that I’ve interacted with, is that one or two of you have actually faced this challenge in the real world and I’d be interested to know how you tackled such a problem.  Also if you agree with my four general areas of corporate innovation.

I noticed this chart on Pingdom this evening and had to pass it along.  A couple of thoughts:

• I don’t believe this is sustainable for Google.  I think companies spend too much time trying to maintain these numbers, and its exactly what kills them.  When I get news like this out of Google I start to think that they’re stifling ideas to maintain profits and that will kill you every time.
• Apple is riding huge margins.  How long can the amount of profit produced outpace the amount of value produced?
• I’m impressed with Oracle and Cisco, both are doing better then I would have guessed.
• I’m disappointed in Amazon and Dell, both aren’t doing all they could.
• Love them or hate them or both, it’s hard to imagine any technology company will ever be as consistently successful as Microsoft has been the last 25 years.
• Twitter would be negative.
• I saw a link to this chart from 37Signals, what do you think there number is?  I’m thinking it has 7 digits.

Source: http://www.slideshare.net/reed2002/netflix-business-opportunity#40

There has been much press about the fall of newspapers and book publishing in this country.  Truth be told, I feel no sympathy for either one.  The writing was on the wall and they did nothing.  I hope they find a way to succeed, because I think they serve a valuable purpose, but if they don’t they’ll have no one to blame but themselves.

I’ve said this for a long time, but today I ran across a story that shows a solid case in point.  Look at what Netflix, a publicly traded company, says is going to happen to their bread and butter business (mailing DVDs to customers).  I’m sure Netflix executives don’t hope that their stock goes down in the short term, but they also are aware that unless they’re honest about what’s going to happen in their industry, they won’t be able to survive the next 5 years.  Is this what publishing companies and newspapers were doing in 2000?  No, but it’s what they should have been doing.

I am in the middle of an IS class in my MBA and it has lead me to question the true reason for a lot of the things that “just are” in the world of enterprise IT.  One of the most interesting to me, occurred just yesterday.  I was answering a question about why SAP’s decision to create the NetWeaver platform made them a better fit for smaller (but still medium-sized) businesses.  The answer, I found, has to do with the application architectures of companies.  Small companies use almost exclusively COTS software while giant companies use almost exclusively in-house development.  I know this, you know this, but the question is why is it true?



The answer has to do with two fundamental relationships.  The relationship between the size of the organization and its business process flexibility and the relationship between a software solutions’ flexibility and the degree to which it was developed in-house.  As entities get larger there processes get more and more rigid (this is, of course, a general rule; there are ways to combat this).  Think of how easily a sole-proprietorship could change its payroll schedule from weekly to bi-weekly.  It might involve a quick call to the bank, probably less.  Now imagine Walmart making the same change.  Lawyers, bankers, financial analysts, etc… would go crazy over every detail.

This has a correlation to the level of customization of a software solution.  A large organization is less likely to be willing to change its payroll schedule in order to fit in to a specific piece of software, while a sole proprietor is unlikely to spend a week reprogramming his HR tool to avoid a simple call to the banker.  Going back to the SAP NetWeaver example, SAP’s opening of a platform to independent software vendors (ISVs) creates a market of somewhat-customized but somewhat-canned solutions that medium businesses can use.  They may require tweaking their business processes, but they won’t cost as much as hiring an SI to tailor a full SAP integration (a typical SAP installation at a Fortune 500 company requires 600% to 700% of licensing cost in “customization”).

The trick for B2B software entrepreneurs is to look at the size of the companies in your target market and decide how prescriptive you want to be in your recommendations.  If you’re working with small businesses, it is ok to hold their hands through a prescriptive process because they aren’t too attached to their existing one.  If you’re selling to larger businesses, you must ensure that your value proposition can be exploited no matter how a clients’ business process works.

Finance is not my area of expertise, nor the domain of this blog.  This post will touch on it, but the point is more to use the recent Goldman news as a case study in how little we know about the world of high finance and why tying our money up in something we know so little about is foolish.

A few weeks ago, the SEC sued Goldman Sachs for fraud.  There was an instant uproar amongst most everyone I know.  I was, frankly, shocked by the level of emotion and chose to ignore the story until I had time to figure out what happened.  Yesterday I finally found the time to figure it out, I was glad to see that Taesik Yoon of Forbes took a closer look on his blog.  Taesik’s review is quite thorough and does paint a grim picture of an at least disingenuous move by Goldman.  Essentially, they sold long positions in a security which they knew was (in part) created by a hedge fund that wanted to short it.  Goldman’s defense is that the short parties and the long parties did (and should have) conferred on the composition of the RBMS in question.  I disagree with this defense on principle, I think every security on any market should be built with the intention to succeed.  Some will fail, and people should be allowed to short, but the financial instruments should not be built to fail.

Most peoples’ reaction to the Goldman suit was visceral revulsion.  Worse, the reactions were not based on disappointment with fraud but with the fact that Goldman made money while people on “Main Street” lost it.  The fire got stoked a little more yesterday, when financial reporting showed that the traders at Goldman had an excellent record in the first quarter of 2010.  My Financial Times tells me that Goldman traders made at least $25 Million every business day last quarter and sometimes as much as 4 times that.  Most people get angry when they hear that.

I have an undergraduate focus in economics and (nearly) an MBA, so I can tell you they were just doing their jobs.  If Goldman plays their cards right on the trading desk they should NEVER lose money.  I don’t know exactly how that’s done, but I know enough to know that it’s a confusing world out there.  The critical thing here, is what I said in the first sentence, “They were just doing their jobs.”  They don’t lose money because they’re good at what they do.  You’re not good at investing in the stock market and neither am I.  These guys think about it 24/7/365, how can you and I compete with them in the market?  Why should we?

In the same way that I don’t know exactly what they do to enable them to make at least $25M everyday in a quarter where there were plenty of up days, down days and flat days; they have no idea how I can take an idea and turn it into a company.  I do though.  Consequently, if you want me to bet my life savings, I’m going to bet it on me, not on a market I know dangerously little about.  You should do the same thing, don’t be confined to the market when you make investments.  Think about what YOU can do to make your money in to more money.  It will be harder and more time consuming then the market, but there’s a much higher potential return (personally and monetarily) and much less risk (provided you’re careful and remain at least a little diversified).